Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



A Bump in the Road Is No Reason to Sell

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

This article is part of our real-money portfolios series.

Technical ceramics-maker Ceradyne (Nasdaq: CRDN  ) , a holding of my Messed-Up Expectations portfolio, was hit pretty hard in April when it missed pretty badly on expected revenue and earnings for the first quarter. Interestingly, though, the share price hasn't changed much since then, certainly not falling further in May as the rest of the market fell.

The main culprit was a large drop in sales of crucibles to the solar silicon photovoltaic market as customers had overproduced silicon wafers and need to work through that inventory before melting more silicon in Ceradyne's one-time use crucibles.

Ceradyne is in the midst of a transition, moving away from relying primarily on defense-related sales (it sold a lot of body armor and helmets) to selling to wide range of industries, including automotive, nuclear, oil and natural gas, health care, electronics, pharmaceutical and chemical, and cosmetics.

Yes, I wrote cosmetics. It recently struck a deal with Merck KGaA to expand sales of boron nitride -- a white powder with good spreadability and a velvety feel -- to the cosmetics industry for items like eye shadow and liquid foundation. That's a long way from battle armor, though I guess one could say that cosmetics are part of a woman's arsenal.

It's growing sales in the energy sector, too, both to the nuclear industry (e.g., nuclear waste containment) and the oil and gas industry. It has PetroCeram, a ceramic screen that filters out sand during oil and gas extraction. As Petrobras (NYSE: PBR  ) starts working the large oil fields off the shore of Brazil, Ceradyne expects to sell a lot of these.

Finally, a potentially very large growth area is in micro reactors, used in chemical and drug manufacturing. These are small-volume, high-throughput ways of synthesizing chemicals that result in better control of the reactions, giving higher yield and fewer side products, along with using less energy. The ESK Ceramics subsidiary is already involved in larger-scale flow-chemistry reactors, and it recently invested in Chemtrix, a German company, which will help it with the micro reactor market. Giants Johnson & Johnson (NYSE: JNJ  ) and DuPont (NYSE: DD  ) already use the technology, and the field is rapidly growing.

Of course, the transition away from defense is not going to go 100% smoothly, as the drop in sales of those crucibles demonstrated. However, Ceradyne is making the right moves, partnering with experienced companies to expand in new markets, and obtaining technology with strategic investments and acquisitions.

The company's goal is to reach sales of $1 billion by 2016, a bit less than double what it's achieved over the past four quarters. If it continues to find new areas to sell ceramics into, it should be able to reach that level.

The company hit a rough patch resulting in a lower share price. My thesis hasn't been broken, however, so I'm going to increase my investment in Ceradyne.

As noted, oil and natural gas are only a small part of what Ceradyne is doing. If you want three ideas of where to invest just in that exciting industry, check out our free report, "3 Stocks for $100 Oil," where we detail three companies we think will do well in today's markets.

This article is part of our real-money portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our analysts (and their portfolios).

Fool analyst Jim Mueller owns shares of Johnson & Johnson. He's an analyst for the Motley Fool Stock Advisor newsletter service. The Motley Fool owns shares of Ceradyne and Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Petrobras and Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1914671, ~/Articles/ArticleHandler.aspx, 5/28/2016 4:29:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 31.74 0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
CRDN.DL $0.00 Down +0.00 +0.00%
Ceradyne CAPS Rating: ****
DD $67.17 Up +0.21 +0.31%
E.I. du Pont de Ne… CAPS Rating: *****
JNJ $113.06 Up +0.16 +0.14%
Johnson & Johnson CAPS Rating: *****
PBR $5.84 Down -0.22 -3.63%
Petroleo Brasileir… CAPS Rating: **